Real Estate Legislative Development Update

Florida Title Insurance Study Advisory Council

The Florida Title Insurance Study Advisory Council, which will discuss how the regulation of title insurance should be structured, held its first meeting on Tuesday, October 21, 2008 in Tallahassee. It goes without saying that we all have a vested interest in the outcome of this group, and therefore we hope that this information will spur discussion amongst Real Estate Councils locally.

The discussion began with an overview of the Florida title insurance industry, prepared by the Office of Program Policy Analysis & Government Accountability (OPPAGA) at the direction of the legislature. A copy of the OPPAGA Report may be found at the Council Web site listed below. The Report addresses three principal areas:

1. the history of title insurance in Florida;

2. how title insurance is regulated in Florida; and

3. what are the consequences of the current regulatory framework. The Report is fair and balanced in most respects, and provides an introduction for the non-industry members to the issues likely to dominate the work of the Council.

After comments about the history of title insurance in Florida by members, a general discussion of promulgated rates versus file and use rate setting ensued. It appears that no one in attendance had knowledge of why the legislature determined in 1965 to give the Insurance Commissioner the power and responsibility to promulgate title insurance rates when all other lines of insurance employed the file and use system. Member Bill Randol gave an interesting history of the currently wide-spread designation of title insurance as a monoline product, dating back to the Depression era when title insurance and mortgage insurance were sold by the same company. The crash of the home mortgage industry back then (history does repeat itself) destroyed home mortgage insurers and with them, their title insurance business. Perhaps because of this recalled history and the unique position of title insurance as a monoline product, the legislature believed an extra measure of stability was needed for this product and that rate-setting by government would provide that. One member remarked that solvency and stability of the industry was important to maintaining insurers' ability to respond to claims and the promulgated rate method best achieved this goal through reduction of excessive and damaging price competition.

Agents and insurers voiced their preference for promulgated rates and the OIR representative, Steve Parton, joined by Terry Butler, of the Insurance Consumer Advocate's Office, favored "file and use." Mr. Parton reiterated his complaint that insurers and agents have failed to cooperate in providing income and expense data for review by the state for rate-making purposes. The industry response was that there needs to be an effective, functional data call format prepared and disseminated at least one year in advance of any data call in order for agents and insurers to begin maintaining the requested data in the format prescribed. One member mentioned that the NAIC Title Insurance Issues Working Group had the creation of a uniform data collection system as its highest priority for this (2008) year. The Chair suggested that the Council might want to follow these NAIC developments. Mr. Parton did agree that whether the state remains with the promulgated rate or adopts the file and use system, accurate data collection with a uniform data call format would be necessary.

There was little discussion of the present bifurcated regulatory structure, other than the information appearing in the OPPAGA Report. This topic, however, will undoubtedly be further explored in future Council meetings. The Chair announced that he was quite pleased with the number of topics that the Council appeared to be in agreement on. Among these, he noted, were:

1. title insurance should remain a regulated product

2. a need for a uniform data collection process

3. a periodic review of title insurance premiums

4. the need for stability and solvency in the industry

With those remarks by the Chair, the meeting adjourned. The next meeting has not yet been scheduled, but we will continue to keep our members apprised of the discussion in Tallahassee.

Council members' names and the entities they represent may be found on the state government Web site created to host the activities of the Council:

http://www.flgov.com/

RESPA REFORM

The newly-released RESPA Reform rule must face a number of steps before being implemented. There is much to be examined with this new rule, and you can expect to hear more from us in the weeks and months to come, but in the interim a few key highlights include:

• The significant removal of the previously proposed closing script, which would have required settlement agents to explain the lenders package.

• Average cost pricing may clarify and simplify charges passed to clients, such as courier and overnight services, which could benefit settlement agents.

• Changes to how charges in the 1100 series on the HUD-1 statement are displayed are currently at odds with Florida requirements, and will require state regulators to work with settlement services companies to make changes to comply with new regulations.

• Note that although some definitions in the new rule will become effective January 16, 2009, the new Good Faith Estimate and HUD-1/1-A forms will not become mandatory until January 1, 2010. Either the new or the present forms can be used between 1-16-09 and 1-1-10, but it is highly unlikely that any lender will require settlement agents to use the new HUD-1/1-A before 1-1-10 because of the massive reprogramming and retraining lenders will have to do to adapt to the new GFE and HUD-1/1-A.

• The new third page of the HUD-1 statement will require lenders to provide figures to the closing agent to allow for a comparison between the Good Faith Estimate (GFE) and HUD-1 statement.

These changes will have a direct impact on the day-to-day preparation of HUD-1 statements, and many fear that discounting and tolerances provisions may give lenders more influence over the settlement services process.

It is important to note, however, that the new Congress that will be put in place following the Jan. 20, 2009 inauguration of President Obama will have 60 days to take action with the rule. Therefore it is possible that the rule we are currently reviewing could face significant additional changes.

We will continue to apprise you of additional developments that impact your business and our industry as a whole. For more information on RESPA Reform developments, log onto http://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm, or feel free to direct questions to me at rngay@thefund.com.

Sincerely,

R. Norwood Gay